Sun Micro to cut up to 5,000 jobs in restructuring

Computer server and software giant also scraps poison pill plan

SAN FRANCISCO (MarketWatch) -- Sun Microsystems Inc. said Wednesday it will cut 4,000 to 5,000 jobs over the next six months and sell one of its California office parks in a major restructuring to save the troubled maker of computer servers up to $590 million a year.

Santa Clara, Calif.-based Sun also said its board of directors voted to eliminate its poison pill plan, a move which may make the company a more-attractive acquisition target. Poison pills are often used to deter hostile takeover attempts.

Following the announcements, Sun fell by at penny to $4.62 in after-hours trading after rising 8 cents to close at $4.63 in the regular trading session.

The job cuts of 11% to 13% of its workforce will leave Sun with 32,500 to 33,500 employees. Sun
SUNW, -1.67%
said that in addition to cutting the jobs over the next six months, it would sell its campus in Newark, Calif., and give up its leased facilities in Sunnyvale, Calif.

The cuts come a little more than a month after Jonathan Schwartz took over as chief executive from Scott McNealy, who remains chairman, to turn the company around as it competes with rivals such as Hewlett Packard Co.
HPQ, -0.68%
It will be the first major round of job cuts for Sun since the company shed more than 3,000 jobs when it reached a settlement in its antitrust case with Microsoft Corp.
MSFT, -0.57%
in 2004.

Sun said it intends on keeping open its two major Silicon Valley centers in Menlo Park, Calif. and Santa Clara.

"I know these changes will be tough for many employees," Schwartz said. "But I'm also convinced they will yield a more valuable company for customers, shareholders and our remaining employees."

Sun estimates it would take between $340 million and $500 million in charges over the next several quarters as it implements the restructuring, with the majority of the charges taking place in its fiscal quarter ending June 30.

Sun said the purpose of the restructuring was to "better align expenses with its core business strategy," and put in on a path toward eventually reporting operating income equal to 10% of its revenue. The company set a goal of operating income equal to 4% of revenue for its 2007 fiscal fourth quarter.

Schwartz said the moves are necessary to bring Sun back to consistent profitability by focusing on its key customers for whom "the network has become core to how they engage their markets."

"Our industry is littered with companies that try to be all things to all people," Schwartz said. "And that's not Sun."

Brent Bracelin, an analyst with Pacific Crest Securities, said the job cuts represent "the bare minimum" Sun needs to make in order to get back to profitability.

Bracelin said Sun's plans are positive, but still don't mean the company will get back to consistent profitability over the next several quarters. Bracelin, who holds a sector perform rating on Sun's stock, estimates Sun will lose a penny a share for its 2006 fiscal year, which ends June 30, while consensus estimates of analysts surveyed by Thomson First Call are for Sun to lose 2 cents a share.

Poison pill scrapped

Sun also scrapped its poison pill, saying in a company statement that its board will now have to obtain stockholder approval before adopting a future poison pill, unless the board determines "it would be in the best interests of the company and its stockholders to adopt a poison pill without prior stockholder approval."

So-called poison pills are often adopted as a means of making a hostile takeover less attractive to a potential acquirer, often by raising the cost of a potential acquisition.

Sun said that if a poison pill is adopted by its board without stockholder approval, the poison pill must then provide that it will expire within one year unless stockholders ratify the measure.

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